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Adair Turner, a former chairman of the United Kingdom's Financial Services Authority and former member of the UK's Financial Policy Committee, is Chairman of the Institute for New Economic Thinking. His latest book is Between Debt and the Devil.

This is a very article that puts forth straightforward ideas for counteracting unsustainable growth in debt, however, I am not optimistic that we can implement any of these options without first addressing the underlying incentives that individuals, companies, and countries have, which places greater emphasis on short term gains than long term sustainability. Human nature is a peculiar thing and we will never fix the underlying problem by only addressing the symptoms.

This 'taboo' against accepting the fact that sovereign governments have no real restriction on funding other than self-imposed rules is exasperating. It is because of this taboo, and the associated fetish for reducing government debt, that we have a arrived at a situation where private sector debt levels are at record high. It really is time to accept reality, which is that sovereign government can always fund themselves in the currency they issue and do not need to worry about debt levels. Their only concern should be inflation.

our guru M Gandhi said one time and i quote " this world has enough resources to satisfy everyone's need but not their greed."
government in USA and other developed countries have created debt in order to fund these fancy schemes like Climate change, and fossil fuel subsidy and many more. This moeny obviously goes to those greedy perpetrators of the above causes.

The Banking System is controlled by The Central Banks - which are owned by the Government - that requires reserves of capital to control Bank Assets building up beyond limits warranted by size of capital. Market conditions can cause collapses in the Asset Prices leading to Insufficient Capital. The Banks then need to be protected by the Government. Hence the need for the Government's Regulatory agencies to impose conditions on the kind and quality of Bank Assets that the Banking System acquires. The European Central Bank capacity to control is limited compared to the Bank of England or the Federal Reserve. Because of sovereignty of the member nations - if the members were Yorkshire and Lancashire, this issue does not arise as there is free and perfect mobility and migration is unlimited. However in Europe, actions and conditions imposed by The ECB can result in regional economic disparities that free migration cannot bridge. And it instantly transforms into political confrontations. Without the politics, the ECB can technically restrict Bank Assets to be matched by Asset Values created when Banks lend. And ECB can determine the price at which Bank Assets are created, to ensure economic targets are achieved - that the price is moving towards Zero is due to the excessive levels of debt. By linking loan to value or by accounting and tax methodologies, debt levels can be controlled - the point that the authors make. The Government's role is obvious as their borrowings can be perpetual at a price they determine - hence their ability to offset deleveraging in the Corporate sector or the Household sector.

This is the first time I read, as explicitly as it can be stated, what has been a key taboo concept in economics: the acceptance of monetization by central banks of their governments own debt.
Does accepting this practice, and so accepting the accounting change suggested of focusing on "net government debt", would really help to make public debt more sustainable?
With due respect to both authors, I disagree. A first reaction would be to bring the argument to the extreme: well, then let's monetize 100% of the public debt, the net position would be ...zero!. A second argument would be to ask a basic question: what makes any debt sustainable? I would argue, the expected capability of repayment. 2 definitions here: (1) capability of repayment (i.e. basically that surplus operating cashflow, coming from wherever it can possibly come, is sufficient to cover the scheduled repayment of principal & interest), (2) expected (i.e. the estimation by market agents that those surplus operating cashflows will effectively materialize).
You could say that as the central bank monetizes the public debt, the reminder in investors hands has a larger surplus of operating cashflow pool (as the interests paid to central bank is still part of the government); however let's not forget that the monetization happened in the first place by creating monetary base out of nothing (a booking in the liability side of the central bank B/S), which is supposed [starting to be debated now!] to be gradually eliminated subsequently (sooner or later) with the repayment of the debt bought. In other words, if you consolidate the B/S of the government and the central bank (at the end, are the same, as the argument goes), we would find that it is sustained in the Liability side with a huge monetary base which necessarily will need back up from surplus operating cashflows... if you want market agents to belief that this B/S is sustainable. Basically, we are talking now about the pure credit risk credibility of the governement+central bank together.
This credibility, at the end, it is in the hand of those market agents' expectations, which are variable and volatile by their very nature (btw, because of this, I think is impossible to set up an stable, absolute "threshold of debt sustainability" based on any quantitative metric).
Thus, debt will be "sustainable" up to the very moment those expectations decide it is "not sustainable" anymore. For instance, Greece debt was deemed to be highly unsustainable during 2011-12 Euro crisis, then after the rescue expectations calmed down, and as we speak expectations have changed for the worse again. Debt yields basically acting as an imperfect proxy (as they compute many factors other than just the expected capability of repayment).
Following this logic, central bank monetization of public debt is not desirable, neither sustainable in the long run... it can buy time though (the main argument, in my view, left for QE).
However, this time should be used urgently and drastically by governments to do their homework: balancing the difficult prioritization of social vs job-creating initiatives watching carefully for generating more surplus of operating cashflows to make the debt servicing more believable to market agents at any point in time (not forgetting that expectations will keep changing!). Otherwise, there will be a point where agents may stop believing and DEFAULT will become a forced, inevitable reality... it happens with families, companies, government and, I argue, will happen also to government+central bank together because of monetization abuse.

In Europe, financial innovation was redirected long time ago towards developing new tools for debt reduction. The most innovative tool for this purpose was the currency union - with easy recipes: overborrow, live beyond your means and then blackmail your fellow member states until they pay your debt. Very innovative indeed. Only the rule of law falls by the wayside. What a pity... But never mind - the rule of law is not that important and the currency union is so beneficial for everyone (fingers crossed).

Another reason to favor the Shared Economic Growth tax reform proposal,http://sharedgrowth.blogspot.com/?view=mosaic , which reduces the incentive for over-leveraging corporate businesses. In the financial crisis the one real "crisis" was loss of liquidity in the corporate commercial paper market. Everything else could have been left to shake itself out without the economy coming to a halt. Keep corporate leverage down to a reasonable level, reduce unstable mortgage debt, and fix our college tuition problem, and the economy will be much better off.

Governments have been borrowing from the filthy rich instead of taxing them. It's time to reverse the process. Tax the rich at an appropriate level and reduce the debt to manageable levels.

The rich desperately want those government bonds for their high and safe returns. They want the citizen/serfs of every country to keep them in control and fat and happy. A people willing to live like that deserve to be called serfs.

The authors write about two different types of debt, but unfortunately don't seem to realize that they are entirely different - 1. sovereign debt where the borrowing government controls the production of the currency it borrows in and 2. all other debt.

I find it all the more strange since Mr Turner only last month discussed just this difference - https://www.project-syndicate.org/commentary/japan-monetization-government-debt-by-adair-turner-2015-03.

If Reinhart and Rogoff proved anything, it is that there is no known limit to borrowings of the the first type of debt - see debt levels in the USA after WWII and Japan today, for instance.

In addition as Mr Turner mentioned last month, Japan is monetarizing its debt, thereby disproving Milton Friedman's famous pronouncement - "Inflation is always and everywhere a monetary phenomenon..."

Fourth option (my favorite) force banks to hold the same equity against mortgages that they are required to hold when giving loans to those “risky” SMEs, those that could provide the homebuyers with the jobs they need in order to repay the mortgages and the utilities.

You have to understand, and from this article it is obvious that writer is not aware of it, that ALL savings, profits are created solely because of existence of government debts.
( unless country follows beggar thy neighbour strategy of trade surplusses - as is the case of Germany and consequences for Europe are clearly seen)

So if you say you want to reduce debts, you are calling for reducing the accumulated savings.

If you are saying that too much debt is a problem, you are in fact admitting that too much accumulated wealth is a problem.

I believe you there is a serious fallacy in your thinking. You do not understand that 95%-97% of the money supply is privately issued (by banks) and, thus, created as *private* debt. Thus, it is not government debt that is behind savings, though governments, presently, guarantee for large parts of this private debt.

Further, Adair Turner has called for sovereign money (Overt Money Financing he calls it), which is debt-free money, to replenish the money supply (pay down debt), by claiming back the prerogative of the sovereign state to issue the medium of exchange.

As for your "solution," it is in the right direction (to address inequality, not public debt), though it requires global cooperation and global pressure to governments, which is not going to happen anytime soon.

Excessive debt plays out differently for the Three Sectors that constitute growth economics.
The Government can create money at a price - the quantity needed to achieve Policy Targets varies.
The Corporate Sector debt capacity is dimensioned versus value in the Stock Markets.
The Household Sector debt capacity is dimensioned versus value in the Real Estate Markets.
The economic meltdown triggered a collapse in valuations - leveraged synthetic investment instruments suddenly were out of the money. Deliberating was forced without the Government Sector stepping in with additional quantities required in the emergency. The hyper valuations needed leverage - and without Government stepping in, it was unsustainable. Liquidations in emergency magnifying the downturn in valuations. Unlike the Stock Market, where trading happens in liquid markets, houses are not traded daily. Valuations are not premised on liquid traded market prices. Hence, the Household Sector valuations are very very different from the Corporate Sector's Stock Market Valuations.
Investment Instruments DID NOT make the distinction.
And the only creator of quantity of money is The Government.
Any Instruments that are designed needs very careful analysis and understanding by the Government Regulatory Institutions to ensure Valuations have volatility that the Government is willing to permit. Because when the house comes crashing down, it is the Government alone that can create money to keep economics going.
So, while the need to design New Instruments that answer the concerns that revive growth, The Government Regulators need to be equipped with all the wisdom that can be brought to bear, to achieve their Policy Targets.

You do not understand the fundamentals. You *think* the government creates money. That is a fallacy. Unfortunately, 95%-97% of the money supply is created by private banks making loans and in financial collapses governments usually guarantee a large part of these loans (no matter what they are for and in what form --mortgage, bonds, etc).

FYI, here is the Bank of England explaining it:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Turner and Lund completely fail to get the point (made by Martin Wolf in the Financial Times recently) that national debt at low interest rates and money are near enough the same thing (base money to be exact). I.e. if it's necessary for the state to issue more "money" than previously to keep the private sector spending at a rate that gives us full employment, what of it? If everyone chooses to carry twice as many dollar bills in their wallets or handbags, what's the problem? There is NO PROBLEM.